M/s. Ramesh Conductors P. Limited and Others Vs. M and SE Facilitation Council (Micro and Small Enterprises) and Others - Court Judgment

Excerpt:
micro, small and medium enterprises development act, 2006 - section 18, section 18(2), section 18(3), section 1(2), section 20, section 26 - tamil nadu micro and small enterprises facilitation rules, 2006 - rule 3 - arbitration and conciliation act 1996 - section 15, section 73, section 7 to section 34, section 7(1), chapter ii to vii €“ supply of goods - belated payment - process of conciliation challenged -petitioner/enterprise was governed by the act, 2006 petitioner and was engaged in the business of supplying transformers to respondents - on account of belated payment by respondent for supply made by petitioner, they are entitled to receive an interest amount €“ petition was filed, which was decided in favor of third respondent €“ thereafter, petitioner enterprise had chosen process of conciliation but, no order has been passed by first respondent regarding the fact that conciliation has failed - hence, this petition issue is €“ whether process followed by council and the manner in which entire process was handled is in complete violation of provisions of the act, 2006 and therefore, impugned order is invalid and non est in law court held- scrutiny of order passed by first respondent reveal that no provisions of sections of the act, 1996 have been applied for conducting arbitration, even though sub-section 3 of section 18 of the act, 1996 has specifically stated that provisions of the act, 1996 shall be applied for conducting arbitration - order was passed in total negation of sub-sections 2 and 3 of section 18 of the act, 1996 and therefore, it cannot be construed that either an order was passed under sub-section 2 of section 18 or an award was passed under sub-section 3 of section 18 of the act, 1996 - that apart, even if order is speaking itself, then petitioner could not have any grievance over order, since order is totally a non-speaking order, petitioner has come forward with this petition €“therefore, orders of first respondent are set aside - petitions allowed. para 37, 38, 40 cases referred: narayan prasad lihia vs. nikunj kumar lohia and others (air 2002 sc 1139). s.kanyalal vs. union of india and others (air 1990 andhra pradesh 1) comparative citation: 2015 wlr 1128, (prayer: these writ petitions are filed under article 226 of the constitution of india, for the relief as stated therein.) common order 1. the writ petitions are filed to issue a writ of certiorarified mandamus, calling for the records of the 1st respondent, in order nos.mandsefc/cber/22/2015, mandsefc/cber/23/2015, mandsefc/cber/25/ 2015, mandsefc/cber/21/2015, mandsefc/cber/24/2015, mandsefc/cber/20/ 2015 dated 17.02.2015 and quash the same and to direct the 1st respondent to refer the claims, dated 27.09.2013, 22.11.2013 of the petitioners respectively, to arbitration in accordance with the provisions of section 18(3) of the msmed act. 2. the case of the petitioners is as follows:- a. the petitioner a micro, small and medium enterprise and is governed by the micro, small and medium enterprises development act, 2006 (herein after called as the msmed act), which was enacted with a view to provide for facilitating the promotion, development and for enhancing the competitiveness of micro, small and medium enterprises. the assent of the president has been received on 16.6.2006 and was brought into effect from 2.10.2006 in terms of section 1(2) of the said act. the object of the act is that in most developed and developing countries, it is necessary that in india too, the concerns of the entire small and medium enterprise sectors are addressed and the sector is provided with a single legal framework. as per section 26 of the said act, the state government is entitled to appoint such officers and employees for the purpose of the act. the state government has also framed rules known as the tamil nadu micro and small enterprises facilitation rules, 2006 and has published the same in the tamil nadu government gazette dated 8.12.2006. the 1st respondent is established under rule 3 in terms of section 20 of the msmed act, 2006. b. the petitioner enterprise has been engaged in the business of supplying acsr, aaac and transformers to tantransco. on account of the belated payment by tantransco for the supply made by the petitioner, they are entitled to receive an interest amount of rs.18,71,910/-. interest on delayed payment to msme's is a right guaranteed under the msmed act. therefore, a reference under the provisions of the msmed act was made on 27.9.2013 against the chief engineers/transmission of tantransco before the first respondent, seeking the above said amount. section 15 of the act is the provision that has clothed the petitioner with the right to file the petition before the first respondent. under section 15, there is an obligation cast on the buyer to make payment on or before the date agreed upon by him and supplier in writing or where there is no agreement in his behalf, before the appointed day. section 15 also casts an obligation on the buyer to pay compound interest on delayed payments. after the case had been instituted, it went through several stages of litigation and was ultimately decided in favour of the third respondent, wherein the first respondent council held that it was not fair on the petitioner to claim interest at this belated stage. there appears to be no further reasons to support the impugned order. the order has been passed on 17.2.2015. the process followed by the council and the manner in which the entire process was handled is in complete violation of the provisions of the msmed act and therefore, the impugned order is invalid and non est in law. a bare perusal of the order clearly brings to light the fact that the order is neither in conciliation nor an arbitration award passed in accordance with section 18 of the msmed act. a perusal of the provision makes it clear that, if it were an order in conciliation, the council can record a settlement between the parties or may record that the settlement has been reached. on the other hand, if it is an arbitration award, it has to be on stamp paper and must be signed by all the arbitrators. 3.further, if it were to be adjudicated as an arbitration dispute, it should only be adjudicated by an odd number of arbitrators. in violation of these norms, the order has been passed pursuant to hearing by four officers of the council. the petitioner enterprise had chosen the process of conciliation as a first step as per section 18(2) of the msmed act. the provisions of the arbitration and conciliation act 1996, with regard to conciliation are to be strictly observed by the first respondent. the provisions were not followed by the facilitation council. section 73 of the arbitration and conciliation act speaks about the manner in which the settlement is to be arrived at in conciliation proceedings which can only be done either through settlement or through a party asking for the proceedings to be terminated. the concept of an order denying a right to a particular party in a conciliation proceeding is beyond the scope of conciliation and the first respondent by doing so has acted in excess of its jurisdiction. the mandate of the first respondent, as with regard to conciliation was to merely look into the aspect of whether the conciliation was successful or not. on its failure, the council has to refer the matter to arbitration as per section 18(3) of the msmed act, and is not authorized to grant an order rejecting the petitioner's claim. this itself goes against the very grain and purport of the act, which unequivocally envisages an arbitration and conciliation proceeding and only that. till date, no order has been passed by the first respondent regarding the fact that conciliation has failed and then referring the matter to arbitration. due to the clear inaction on the part of the first respondent, the petitioner had no choice but to send a detailed representation to the first respondent, detailing the aforementioned points and had made a request towards referring this matter to arbitration. the representation was sent by the petitioner on the 25th of april 2015 and till date there has been no reply to the same, nor any action taken towards the actualization of the same. the impugned order dated 17.2.2015, bearing no.mandsefc/cber/22/2015 is completely without jurisdiction and the authorities have no manner of authority to pass the said order. hence, this writ petition has been filed for the relief as stated above. 4. the respondents filed a counter affidavit, wherein it is averred as follows:- a. the reference made by the petitioner before the m and se facilitation council itself is not maintainable under the msmed act, as there is no specific provisions available in the act, to claim only interest after having received the entire principle amount from the buyer. after the reference made by the petitioner under section 18 of the act, the council has issued notice to the third respondent and fixed a date for hearing, on 19.11.2013. on the said date, the petitioner was represented by its manager and on the side of the respondent, no one was represented. on that first hearing itself, the manager represented by the petitioner company has admitted that the company has received the entire principle amount from the buyer and on the date of marking reference, there was no payment due. the case was adjourned to 14.10.2014 and on that day the respondent was represented by its counsel, but there was no representation from the petitioner. when the council made a query as to whether there is any possibility of amicable settlement of the claim amount, by way of mutual negotiations between the petitioner and the respondent, the counsel for the respondent has represented that there is no such possibilities since because all the payments have been already made and there is no due, and now the petitioner is coming up with a reference to claim interest calculated as if the payment has been delayed and also he informed the council that the reference itself is bad in law, as there is no specific provision available in the act to claim interest even after receipt of the entire payment from a buyer and on that grounds a counter affidavit has also been filed by the respondent counsel. b. on the next hearing held on 17.2.2015, the petitioner was represented by its director and the respondent was represented by assistant executive engineer and their counsel. since there was no possibility of any amicable settlement, the council have themselves conducted the case and heard both sides and also given opportunities to the petitioners company to prove their contention that there is a payment of interest by the respondent to another company and based on the documents furnished by the petitioner's representative, the council found that it was irrelevant to the present case. then, the council, based on the claim made under the reference under section 18 of the act, by the petitioner and the counter filed by the respondent, has categorically found that the claim made under reference by the petitioner is not maintainable and rejected the same. the first respondent has conducted the process of considering the reference under section 18 by following the provisions of msmed act and passed an award in accordance with section 18 of the msmed act. on a perusal of the order passed by the council, it can be seen that all opportunities have been given to both the sides and a considered order has been passed by the council. it is incorrect to state that the council has not followed the procedure made out under section 18 of the msmed act. the reference made by the petitioner was processed under the procedures contemplated under section 18 of the msmed act and arbitration and conciliation act and final orders passed has become an award passed under an arbitration. if at all either one of the party in proceedings is aggrieved by that order, an appeal can be made as provided under section 19 of the msmed act, for setting aside the decree, award or order, wherein, it is categorically stated that no application for setting aside any decree, award or other order shall be entertained by any court, unless the appellant has deposited with it 75% of the amount in terms of the decree, award or order as the case may be. since the order passed by the council adopting the procedures contemplated under the arbitration act, it will be treated as an award passed under an arbitration. as such, the aggrieved party can prefer an appeal against the award passed by the arbitration under section 34 of the arbitration and conciliation act, 1996, which provides that an arbitral award made by an arbitral tribunal may be set aside by the court on an application made by the aggrieved party. the petitioner having made a reference to the first respondent council purportedly under section 18 of the msmed act, 2006, is estopped to aver that the impugned order was without jurisdiction. the council has passed the impugned order in accordance with law. as such the petitioner is not entitled to challenge the same. hence, none of the grounds raised in the writ petition are tenable. moreover, the reference is not maintainable at a distant point of time as well. the petitioner who is aggrieved of the final order passed by the council ought to have preferred an appeal against the order under section 34 of the arbitration and conciliation act, but the petitioner has wrongly approached this court . it is settled law that when there is a appellate remedy available, approaching the writ jurisdiction is not maintainable. in such circumstances, this writ petition is liable to be dismissed. 4a. heard the learned counsel for the petitioner and the learned counsel for the third respondent. 5. the learned counsel for the petitioners has contended that the impugned order is bad in law as it was passed in excess of the jurisdiction of the first respondent and it was completely at variance with the provisions of the msmed act, 2006. 6. the learned counsel has submitted that the first respondent, as per the provisions of section 18 of the act, should have conducted the conciliation proceedings by following the provisions relating to conciliation under the provisions of the arbitration and conciliation act, 1996, and if no settlement is reached amicably, then he should have referred the matter to arbitration and such kind of procedure has not been followed. 7. further, the learned counsel has argued that even assuming for the sake of argument that the respondent himself had conducted the arbitration, but a perusal of the order would reveal that no arbitration was conducted as per the procedures laid down in the arbitration and conciliation act, 1996. 8. the learned counsel vehemently contended that the provisions of section 18 provides, firstly, for conciliation and then secondly for arbitration, whereas a perusal of the order passed by the first respondent reveals nothing, whether it was passed under the conciliation proceedings or under the arbitral proceedings and in short, it is nothing but a non-speaking order. 9. in support of his contention, he has relied on the following decisions:- a. narayan prasad lihia vs. nikunj kumar lohia and others (air 2002 sc 1139). b. s.kanyalal vs. union of india and others (air 1990 andhra pradesh 1) 10. on the other hand, the learned counsel appearing for the third respondent has submitted that having received the principal amount, the petitioner cannot make any claim for interest and therefore, the very reference to the council is not maintainable. 11. the learned counsel has submitted that as there was no possibility for any amicable settlement, the council themselves have conducted the case and after affording of an opportunity to both the parties, the reference was rejected by the council, thus, the first respondent has conducted the arbitration and passed an award in accordance with the provisions of section 18 of the msmed act. 12. the learned counsel has argued that when the reference made by the petitioner was disposed of as per the procedures contemplated under the provisions of section 18 of the msmed act and the arbitration and conciliation act and when the final order was passed, it has become an arbitral award and if any party is aggrieved by that award, he can very well prefer an appeal under section 19 of the msmed act, except the supplier being the appellant, after depositing 75% of the award amount. 13. i have considered the aforesaid submissions and perused the materials available on record. 14. it is manifested from the records relating to w.p.no.18282 of 2015 that the petitioner is engaged in the business of manufacturing transformers, acsr conductor, aaa conductors. as per the terms and conditions, the third respondent has to make 95% of the payment to the petitioner after 45 days from the date of receipt of the materials at site in good condition. in spite of repeated reminders and personal approaches, the third respondent failed and neglected to make the payment to the petitioner. as per the terms and conditions, the third respondent is liable to pay a sum of rs.80,82,727/- at the rate of 27% for the delayed period from the due date for payment, i.e., 45 days from the date of receipt of materials at site in good condition. under these circumstances, the petitioner has made a reference under section 18 of the msmed act, 2006. 14a.at this juncture, it is better to refer to the provisions of section 18 of the msmed act, which reads as under:- "18. reference to micro and small enterprises facilitation council. ” (1) notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the micro and small enterprises facilitation council. (2) on receipt of a reference under sub-section (1), the council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the arbitration and conciliation act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under part iii of that act. (3) where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the council shall either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the arbitration and conciliation act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that act. (4) notwithstanding anything contained in any other law for the time being in force, the micro and small enterprises facilitation council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an arbitrator or conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in india. (5) every reference made under this section shall be decided within a period of ninety days from the date of making such a reference." 15. based on the provisions of section 18(1), the petitioner has made a reference claiming interest to the tune of rs.80,82,727/-. 16. in this regard, the contention of the learned counsel for the third respondent that when the principal amount had already been paid by the third respondent, no reference can be made under section 18(1) of the act to claim interest alone and therefore, the reference is not sustainable cannot be accepted for the reason that in section 18(1), it is clearly stated that any party to a dispute may, with regard to any amount due under section 17, make a reference to the micro and small enterprises facilitation council. 17. section 17, which deals with "recovery amount due" , reads as under:- "17. recovery of amount due. ”for any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16." 18. this clause seeks to make the buyer liable to pay the amount with interest thereon as provided under section 16 for goods supplied or services rendered by the supplier. 19. section 16 contemplates, "date from which and rate at which interest is payable. ”where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the reserve bank." 20. this clause seeks to specify the date from which and the rate at which interests will be payable by the buyer to the supplier in case of the former failing to make payments of the amount to the supplier, as required under section 15. 21. section 15 speaks about the, "liability of the buyer to make payment", which reads as under:- " 15. liability of buyer to make payment. ”where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance." 22. this clause seeks to specify the liability of buyer of goods and services from a supplier to make payment therefor on or before the date agreed upon between the two parties in writing or, where there is no agreement in this behalf, before the appointed day. the proviso to this clause seeks to limit the period agreed upon between the supplier and the buyer in writing to forty-five days from the day of acceptance or the day of deemed acceptance. 23. section 2 (b) of the act, says about what is "appointed day". "2(b). "appointed day" means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier." explanation - for the purposes of this clause :- (i) "the day of acceptance" means :- (a) the day of the actual delivery of goods or the rendering services; or (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier; (ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services; 24.a plain reading of the above provisions of sections 15 to 18 and section 2(b) would reveal that, the petitioner is entitled to make a reference to the council under section 18(1) of the msmed act, to claim interest from the third respondent and therefore, it cannot be contended that the reference itself is not maintainable. 25. once the reference is made, it is the duty of the council to conduct conciliation by itself or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the arbitration and conciliation act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under part iii of that act. 26. sub-section 2 of section 18 clearly says that on receipt of the reference, the council shall conduct the conciliation proceedings either by itself or by any other institution or centre as stated in the provision applying the provisions of sections 65 to 81 of the arbitration and conciliation act, 1996. 27. a perusal of the order of the first respondent reveals that the council had not conducted any conciliation proceedings either by itself or as stated in sub-section 2 of section 18 applying the provisions of sections 65 to 81 of the arbitration and conciliation act, 1996. 28. the provisions of sections 65 to 81 of the arbitration and conciliation act, deals with, submission of statements to conciliator, conciliator not bound by certain enactments, role of conciliator, administrative assistance, communication between conciliator and parties, disclosure of information, cooperation of parties with conciliator, suggestions by parties for settlement of dispute, settlement agreement, status and effect of settlement agreement, confidentiality, termination of conciliation proceedings, resort to arbitral or judicial proceedings, costs, deposits, role of conciliator in other proceedings and admissibility of evidence in other proceedings, respectively. 29. nowhere in the order, this court finds the application of the above provisions for conducting the conciliation proceedings. when sub-section 2 of section 18 clearly specifies the application of the provisions of sections 65 to 81 of the arbitration and conciliation act, for conducting the conciliation proceedings,in the absence of any whisper about the application of the above provisions, the inevitable conclusion is that no conciliation proceedings was conducted by the council and the order was passed by the first respondent in total violation of sub-section 2 of section 18 of the msmed act. 30. then, sub-section 3 of section 18 says that where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the council shall either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the arbitration and conciliation act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that act. 31. a plain reading of sub-section 3 of section 18 shows that if the conciliation proceedings is not successful and stands terminated without any settlement between the parties, then the counsel either itself take up the dispute for arbitration or refer it to any institution or centre for arbitration. 32. as already discussed above, a perusal of the order of the first respondent would show that neither conciliation proceedings had been conducted nor recorded the settlement between the parties or termination of the conciliation proceedings. 33. in the event of termination of conciliation proceedings without any settlement between the parties, the council shall either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the arbitration and conciliation act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that act. 34. at this juncture, it is pertinent to refer to the provisions relating to arbitration as there is a clear mandate in sub-section 3 of section 18 of the act to conduct the arbitration proceedings as per the provisions of the arbitration and conciliation act, 1996. 35. chapter ii to vii in the arbitration and conciliation act, deals with, arbitration agreement, composition of arbitral tribunal, jurisdiction of arbitral tribunals, conduct of arbitral proceedings, making of arbitral award and termination of proceedings and recourse against arbitral award, respectively. 36. the provisions of sections 7 to 34 deals with, arbitration agreement, power to refer parties to arbitration where there is an arbitration agreement, interim measures etc. by court, number of arbitrators, appointment of arbitrators, grounds of challenge, challenge procedure, failure or impossibility to act, termination of mandate and substitution of arbitrator, competence of arbitral tribunal to rule on its jurisdiction, interim measures ordered by arbitral tribunal, equal treatment of parties, determination of rules of procedure, place of arbitration, commencement of arbitral proceedings, language, statements of claim and defence, hearings and written proceedings, default of a party, expert appointed by arbitral tribunal, court assistance in taking evidence, rules applicable to substance of dispute, decision making by panel of arbitrators, settlement, form and contents of arbitral award, termination of proceedings, correction and interpretation of award; additional award and application for setting aside arbitral award, respectively. 37. a scrutiny of the order passed by the first respondent would reveal that no provisions of the above sections of the arbitration and conciliation act, 1996 have been applied for conducting the arbitration, even though the sub-section 3 of section 18 has specifically stated that the provisions of the arbitration and conciliation act, shall be applied for conducting the arbitration. 38. a the perusal of the order in the light of the above provisions would clearly reveal that the order was passed in total negation of sub-sections 2 and 3 of section 18 and therefore, it cannot be construed that either an order was passed under sub-section 2 of section 18 or an award was passed under sub-section 3 of section 18 of the act. 39. that apart, even if the order is speaking itself, then the petitioner could not have any grievance over the order, whereas, since the order is totally a non-speaking order, the petitioner has come forward with this writ petition. 40. under these circumstances, this court is of firm view that, as rightly contended by the learned counsel for the petitioner, since the order passed by the first respondent cannot be construed as the order passed under sub-section 2 of section 18 or an award passed under section 3 of section 18 of the msmed act, the matter has to be remitted back to the first respondent for fresh consideration. accordingly, the writ petitions are allowed setting aside the orders of the first respondent. the matters are remitted back to the first respondent to decide the matters afresh, first, as per sub-section 2 of section 18 and in the event of termination of conciliation proceedings, then as per sub-section 3 of section 18 of the msmed act by following the provisions of the arbitration and conciliation act, 1996 as has been stated in the provisions of section 18 itself, after affording reasonable opportunities to both the parties, within a period of ninety days from the date of receipt of a copy of this order. however, there will be no order as to costs. connected m.ps. are closed.